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Tesco sees pounds 178m wiped off shares: Accountancy watchdog considers investigation: Major investor sells its remaining shareholding(Guardian (UK) Via Acquire Media NewsEdge) Tesco's shares slumped to a near 12-year low yesterday as the accountancy watchdog confirmed it is considering a full investigation into the supermarket's accountancy scandal while one of its biggest investors dumped its shareholding. A further pounds 178m was wiped off the shares as ratings agency S&P also downgraded its view of Tesco's long-term creditworthiness a notch in the light of what it called "significant management and governance deficiencies". The grocer is now valued at pounds 13.7bn - more than pounds 13bn less than at the start of the this year. US investment group Harris Associates revealed that it had sold its remaining 1% stake in the grocer in recent days. Until the summer, according to Reuters, Harris was Tesco's third biggest investor with a near 3% stake. It started to sell down that stake in August. Harris partner David Herro told Sky News: "There is a big question about how they will fund their recovery, given the decline in operating profit and whether they will sell assets just as they are getting into the territory of being a distressed seller." The cost of insuring against Tesco defaulting on its debt also shot up, with the spread on its credit default swaps - derivatives used to insure against a default - widening by 25% . Tesco's half-year update, released on Thursday, made grim reading for investors, with pretax profits crashing 92% to pounds 112m after more than pounds 500m of one-off costs, including those relating to the accounting issue, which dates back further than previously thought. S&P said it expected Tesco's profitability to weaken further. "We anticipate that increased competitive and price pressures in the UK from both traditional and discount retailers could suppress any benefits from various management strategies oriented toward improving trading performance." New industry data out yesterday, underlined Tesco's difficulties. The chain's sales fell 5.2% in the 12 weeks to October 12, according to analysts Nielsen Homescan. That was an improvement from the 6.1% decline seen in September, but compares with flat sales at Asda and only 2% declines at Morrisons and Sainsbury's. City analysts said that they were likely to cut their expectations for Tesco's profits in a flurry of negative notes yesterday which also complained that new boss Dave Lewis had given little indication of how he planned to improve Tesco. "Dave Lewis has time, the board will back him and the rating agencies (despite the downgrades) are giving him 12-24 months to show improvements; so he was right not to panic, not to launch a fire sale or an emergency rights issue. However we still were left wanting a little more," wrote Bruno Monteyne at Bernstein Research, as he warned of further profits downgrades. In a note entitled A Derelict Path, Rickin Thakrar at BESI said Tesco had increased promotions and cut prices so that it was now about 2.7% more expensive than Asda, but the same basket of goods remained 38% cheaper at Aldi, the fast-growing German discounter. He said the supermarket group's profits could be wiped out because of the high running costs associated with the kind of stores it likes. "Tesco is facing the brutal deleveraging impact of running large stores," Rickin wrote. Analysts' concerns were only fuelled when the Financial Reporting Council (FRC) watchdog, which polices accountants and auditors, said it was giving careful consideration to information relating to profit mis-statement revelations set out in Tesco's annual results. Another City regulator, the Financial Conduct Authority (FCA), has launched a formal investigation. Last month, Tesco drafted in Deloitte to comb through its books after a whistleblower identified an issue with the way the retailer booked payments from suppliers. The accountants established that the estimate of first-half profits Tesco gave the City back in August had been artificially inflated by pounds 263m, rather than the pounds 250m originally estimated, and problems stretched back several years. Eight senior executives, including Chris Bush, the head of the UK food business, have been suspended. Analysts have speculated that executives were pulling forward payments to paint a more flattering picture of the supermarket's finances. The Deloitte report concluded that supplier payments had been pulled forward or deferred in a manner that was contrary to Tesco's accounting policies. The report is being shared with the FCA and FRC. The FRC said it would continue to gather information to determine whether it should take regulatory action. Captions: The woes worsened as ratings agency S&P downgraded its view of Tesco's long-term creditworthiness Photo: Jeff J Mitchell/Getty (c) 2014 Guardian Newspapers Limited. |